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Nooil,butaphosphatefutureforSaudidesert
outpost
Thu,Feb132014

*Industrialcomplexplannedinfarnortharoundphosphatemine
*Totalinvestmenttocost$9billion
*PartofSaudistrategytodiversifyfromoil
*OilandgasstillroughlyhalfofSaudiGDP
*FutureoilrevenueuncertainifpriceshitbyU.S.shaleoil
ByAngusMcDowall
TURAIF,SaudiArabia,Feb13(Reuters)BillboardsonthehighwayoutsideTuraif,aremotedeserttowninthefarnorthof
SaudiArabia,foretellaglitteringfutureofglassofficesandpalmshadedresidentialstreets.Afuturethatwon'trelyonSaudi
oil.
Lastweekanarrayofgovernmentministersgatheredinatentnearthisbarrenoutpost,1,100kilometres(700miles)from
Riyadh,tosigncontractstodevelopanindustrialcomplexaroundaphosphatemine,withanewrailwaylinktoaGulfport
andtotalinvestmentsestimatedatmorethan$9billion.
TheWaadalShimalproject,or"NorthernPromise",ispartofawiderstrategyinthekingdom,theworld'slargestoilexporter,
ofbuildingdownstreamindustriesandboostingtheprivatesectorinsteadofsimplyexportingrawmaterials.
ItfollowsinthefootstepsofJubailandYanbu,massiveindustrialcitiesontheGulfandRedSeacoaststhatwerebuiltinthe
1980sasSaudipetrochemicalproductiongrew.
RiyadhisalsopushingtheKingAbdullahEconomicCitynearJeddah,runbyEmaarEconomicCity,asaprivatesector
schemealongthesamelines.
"Ithinkthisapproachissomethingthatwillhelpdiversifytheeconomicbase,"saidPaulGamble,director,sovereignrisk,at
FitchRatings."Itwillhelpdiversifyexportrevenues.Itwillhaveanimpactonemployment,thoughnotalargeone.Theone
thingitdoesn'taddressisdiversifyingbudgetrevenues."
Recentdiversificationeffortsthroughindustrialisationhavehadlittleimpactonofficialfiguresshowingthesizeoftheoil
industryrelativetothewidereconomyasincreasedcruderevenueshaveoutpacedgrowthinnonoilsectors.
Oilandgasaccountedfor49.7percentofGDPin2012,upfrom37.7percentin2002,themostrecentcentralbankdata
shows,asthepriceofBrentcrudequadrupledovertheperiod.
ButmanyanalystsexpectoilpricestofallinthenextfewyearsastheUnitedStatesrampsupshaleoilproduction,whichwill
shinealightonthevirtuesofdiversification.
"Westartedoutexportingcrudeoil,thenwemovedintorefining,thenwemovedintogatheringgasandcreatinga
petrochemicalindustry.Thenwemovedintolargescalemining.Thebenefitofitisthatithaslargedownstreamindustries,"
EconomyMinisterMohammedalJassertoldreportersatTuraif.
Thedesertstretchesinalldirectionsfromthespotwherehespoketoanunbrokenhorizon,butwhencomplete,Waadal
Shimalwillbeamajorproducerofphosphateproductsincludingtheindustrialfertiliserammonia,animalfeedstock,plastics
anddetergents.
THESABICMODEL
Theprojectcouldmakeitsbiggestshareholder,halfstateownedSaudiArabianMiningCompany(Maaden),asignificant
playerintheglobalmineralsindustry,modelledperhapsonSaudiBasicIndustriesCorporation(SABIC),whichwasbuilt
fromnothinginthe1980sandisnowoneoftheworld'sbiggestindustrialchemicalcompanies.
SABICisnotonlySaudi'smainsourceofnonoilexports,butprovidestherawmaterialsforahostofdownstreamfactoriesin
JubailandYanbu.
"There(willbe)manyindustriesthatalsohavehighemploymentvalueintheregion,"FinanceMinisterIbrahimAlassaftold
Reuters.
AmeasureoftheimportanceattachedtojobcreationatWaadalShimalisthatthekingdom'stechnicaltraininginstitute
plansanewcollegenearby,toeducate300graduatesayearforwhitecollarjobsinindustrialfields.
Saudisincreasinglyworkintechnicalfieldsthatwereoncethepreserveofexpatriates,somethinggovernmentlabour

reformsareaimedatencouraging.
However,manycompaniesstillsaytheyprefertohireforeigners,whocostlessandoftenhavemoreexperience.
MineralproductionhasbeenlargelyneglectedbytheSaudiOilMinistryandfordecadeshasbeenrestrictedmostlyto
smallscalegoldmining.
ThegovernmentsetupMaadenin1997andopenedthesectortoprivateandforeigninvestorsin2001.
"SaudiArabiaishardlyexplored.Weexpectveryhighpotentialforadditionalmineralresources.SaudiArabiaisvirgin.
Thereisalotofactivityandinterestinthedevelopmentofminerals,"OilMinisterAliNaimitoldreporters.
Maadenwaspartprivatisedin2008,floatinghalfitssharesontheSaudibourse,anditmovedtowardslargescaleminerals
developmentssupportedbyextensivestatefundedinfrastructure.
ThethinkingbehindMaadenandotherformerstateownedcompaniessetupwithaneyetoprivatisationwasasameansof
distributingwealthandbringingprivatesectornoustodevelopmentprojects.
"Theyhavesomanyforeignpartnersforthesebigprojects,whichgivesmoreconfidenceintheduediligenceprocess,and
thereforetheirchancesofsuccess,"saidFitch'sGamble.
CLUSTERSTRATEGY
Afirstproject,MaadenPhosphateCompany(MPC),startedupin2011inpartnershipwithSABIC,hadcapacitytoproduce
11.6milliontonnesayear(t/y)oforeatalJalamidintheNorthernBordersregion,supplyinga3milliont/ydiammonia
phosphate(DAP)plantatRasalKhairontheGulfcoast.
LastyearMaadeninauguratedasecondmajordevelopment,a$10.8billionaluminiumjointventurewithU.S.basedAlcoa,
withanaluminarefinery,aluminiumsmelterandrollingmillatRasalKhair.
Itcurrentlyimportsrawmaterial,butwilleventuallyusebauxitefromamineatalBa'ithanearQuibainQassimProvince
scheduledtostartupthisyearwithoutputof4milliont/y.
ThephosphatemineatalJalamid,thebauxitemineatQassimandtheprocessingfacilitiesatRasalKhairareconnectedby
anewrailnetworkbuiltbystateownedSaudiArabianRailwaysthatwillbeextendedtoWaadalShimal.
ThegovernmentbuilttheportandsomeotherfacilitiesatRasalKhair,butMaadendevelopedapowerandwater
desalinationplantforitsaluminiumandphosphateprojects.
WaadalShimal,ajointventurewithSABICandU.S.phosphateandpotashproducerMosaic,buildsontheseearlier
developmentswithamineatUmmWualnearTuraifandninelargeprocessingfacilities.
InDecemberMaadensaidithadsecured$4.2billionfinancingcommitmentsfrombanks,whilegovernmentbodieswould
supply$3billion.Firstproductionisexpectedin2016.Governmentagencieswillalsopayforrailandportexpansions.
Engineering,procurementandconstructioncontractsforthemainfacilitieshavealreadybeenawarded,withthelargestjobs
goingtoDaelimIndustrialCo,Spain'sIntecsaIndustrial,SNCLavalin,SinopecEngineeringGroupandHanwha
Engineering&ConstructionCo.
TheengineeringconsultantisFluorCorp,andtheprojectmanagerisBechtel.
SaudiArabiaisalreadyamajorexporterofureaandammonia,twoofthemostcommonartificialfertilisers,viaSaudiArabia
FertilizersCo(SAFCO),aunitofSABIC.
"It'saboutusingwhattheyhaveandproducingvalueaddedgoodsinsteadofjustexportingtherawmaterial.Aroundthatis
anindustrialclusterstrategythatyouhopewillcreatejobsandindustriesyouneverhadbefore,"saidJohnSfakianakis,chief
investmentstrategistforSaudiinvestmentcompanyMasic.
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